British Land’s prime play

— Margaret Doyle is a Reuters columnist. The opinions expressed are her own —

Sir John Ritblat, founder of British Land, was a believer in “buy and hold.” Fortunately for shareholders, Stephen Hester, brought in as chief executive ahead of Ritblat’s retirement in 2006, took a more active view of asset management.

He shifted almost 7 billion pounds-worth of property off the books over 3 years before shifting himself to RBS. The Broadgate Centre remains, but is for sale at the right price. Foreign buyers, lured in by cheaper sterling, might like to take a look.

Chris Grigg, Hester’s replacement, says nearly all of its property has been let, including the massive development at Ropemaker Place in the City of London. However, the two Japanese banks who signed up will enjoy four years rent free, which puts the headline rent of 47 pounds per square foot into perspective.

British Land points out that almost all leases are subject to upward-only rent reviews, but it’s hard to see any increase. Landlords cannot ignore the health (or otherwise) of their tenants. Meadowhall, British Land’s shopping centre near Sheffield, has reduced service charges by 20 percent in response to the shopkeepers’ pain.

Fortunately for Grigg, the balance sheet has been braced with 740 million pounds from shareholders and there is 3 billion pounds of undrawn bank facilities.

The shares are trading close to the new net asset value (NAV) of 398 pence per share, down 64 percent over the year. Collins Stewart calculates the bottom of the cycle NAV at little more than 2 pounds per share, so a return to the good times is already priced in. It could be a long wait.
(Margaret Doyle owns shares in British Land)